Françeska Tomori (URV & CREIP, Tarragona) The impact of environmental regulatory capture on innovation and emissions: The case of the automobile industry

Organised by Section Economics

Tue 19 November 2019 12:30 to 13:30

Venue Leeuwenborch, gebouwnummer 201
Room C82

This paper analyzes how regulatory capture by automobile producers affects their incentives to innovate and the amount of total emissions. Two types of producers are considered: diesel and petrol car. Our results indicate that with a welfare-maximizing regulator that weights consumer surplus and the profits of both car producers equally there are fewer emissions and there is more environmental innovation than under a regulator that merely maximizes consumer welfare. The intuition for this result lies in the fact that a consumer-orientated regulator uses higher emission standards to increase the competition between car producers. As emission standards and environmental innovation are strategic substitutes, car producer reduce their innovation effort as a consequence of this. The result is robust to alternative specifications such as regulatory capture by only one car producer or different environmental damages of different engine types.